What Happens When You Miss a Car Payment?

Missing a car payment can initiate a cascade of financial and personal challenges. Understanding the sequence of events and their potential consequences is important for anyone facing such a situation. This article outlines what occurs when a car payment is not made, from initial financial penalties to the ultimate impact on your financial standing.

Initial Financial Consequences

When a car payment is missed, the immediate financial repercussions begin with the loan status changing from current to delinquent. Many auto loans include a grace period, ranging from 7 to 15 days, during which a payment can still be made without incurring a late fee. However, once this grace period expires, lenders impose a late fee, which can vary but often falls between $15 and $50, or a percentage of the overdue amount. This fee is added to the outstanding balance, increasing the amount owed.

Even if a payment is made within a short grace period, the loan agreement might still consider the payment late, though without an immediate fee or credit report impact. While a grace period can prevent immediate penalties, it does not erase the fact that the payment was not made by the original due date. Continuously relying on grace periods can lead to a pattern of late payments, signaling financial instability to your lender. The terms of your loan agreement dictate the exact length of any grace period and the structure of late fees.

Credit Reporting Impact

A missed car payment impacts your credit history and score. Lenders do not report a payment as late to the major credit bureaus until it is at least 30 days past due. Once a payment reaches this 30-day delinquency mark, it is reported, leading to a drop in your credit score. The longer the payment remains unpaid, the more severe the negative impact becomes, with additional reporting milestones at 60, 90, and 120 days past due.

A single 30-day late payment can cause a decline in a credit score, and subsequent delinquencies will compound this damage. These negative marks can remain on your credit report for up to seven years from the original delinquency date. A lower credit score makes it more challenging to secure future loans, such as mortgages or other vehicle financing, and can result in higher interest rates on any approved credit. This adverse credit history signals a higher risk to potential lenders, affecting your financial opportunities.

Lender Actions and Communication

Once a car payment becomes delinquent, the lender will escalate communication and take steps to recover the outstanding amount. Initially, this involves a series of phone calls, emails, and letters serving as payment reminders and demand for payment. The intensity and frequency of these communications increase as the delinquency lengthens. These notices inform the borrower of the default status and the potential consequences if the payment is not brought current.

Loan agreements contain an “acceleration clause,” which allows the lender to demand the entire outstanding loan balance be paid immediately if certain conditions, such as missed payments, are not met. While this clause does not trigger automatically, the lender may choose to invoke it after a period of prolonged delinquency, around 60 to 90 days past due. If the loan is accelerated, the borrower becomes responsible for the full remaining balance, not just the overdue payment, increasing the financial pressure. This demand precedes repossession efforts and serves as a final warning.

Vehicle Repossession

If a borrower fails to bring the loan current after repeated attempts by the lender, vehicle repossession becomes a likely outcome. Loan agreements specify that default, which includes non-payment, grants the lender the right to repossess the vehicle, as the car itself serves as collateral for the loan. In many jurisdictions, lenders can repossess a vehicle without prior notice or a court order, provided they do so without breaching the peace. Breaching the peace means using physical force, threatening force, or taking the vehicle from an enclosed space like a garage without permission.

Repossession can occur within 60 to 90 days of continuous non-payment, depending on the lender and specific loan terms. When repossession takes place, any personal belongings left inside the vehicle are considered the borrower’s property and cannot be kept or sold by the lender. Lenders are required to inform the borrower how to retrieve these items, within a specified timeframe, and cannot charge a fee for their return.

After Repossession

Once a vehicle has been repossessed, the lender sells it to recover the outstanding debt. This sale occurs at a public auction or through a private sale. The proceeds from the sale are first applied to cover the costs associated with the repossession, such as towing, storage, and sale preparation fees, and then to the remaining loan balance.

The sale price of the repossessed vehicle is less than the outstanding loan balance due to depreciation and the nature of auction sales. This difference creates a “deficiency balance,” which is the amount still owed by the borrower after the sale proceeds have been applied. The lender can then pursue collection of this deficiency balance from the borrower, through collection agencies or by filing a lawsuit to obtain a deficiency judgment. If a judgment is obtained, the lender may be able to pursue wage garnishment, bank account levies, or property liens to satisfy the debt.